States Fear Local Effects if Shutdown Cuts Off Cash

Many states are worrying about the effect of a federal government shut down on their ability to balance their budgets. With budgets already tight, some states are doubtful that they can advance state money for federal expenses for very long. From the New York Times:

If a shutdown were to happen, the federal money that helps states pay the administrative costs of their stretched unemployment programs could dry up, forcing states to advance the money to keep the programs running. Federal grants for a variety of programs — including research, higher education and training local law enforcement officers — could be delayed.

Furloughing nonessential federal workers and halting payments to federal contractors could have a domino effect as local tax collections plummet in the Washington area and other places with many federal workers. And if national parks were closed, some states could lose tourism business, and the local tax revenues they generate.

Other tax and revenue concerns involve other businesses, such as lunch vendors, local transportation, and other services commonly patronized by federal employees during their work day. The National Association of State Budget Workers put out a briefing paper last week detailing the effects of a shutdown. Their position is that a short shutdown spanning two or three days would do minimal damage to state tax revenue and local businesses. They estimate that any longer than a week would cause some states to have a cash-flow problem. That briefing paper can be read by clicking here.

The budget officers’ association noted that during the shutdown in 1995, Maryland spent $1.4 million a day to keep its federally paid employees at work.

To read the full New York Times article, which details several instances of how a shutdown would effect individual states, please click here.

To read MACo’s prior blog coverage of the potential federal government shutdown, please click on the links below:

Federal Government Shutdown Most Likely Averted – How Will Maryland Be Affected? (posted 3/21/2011)

New Funding Extension Introduced to Prevent Federal Government Shutdown (posted 3/15/11)

Congressional Debate on Government Funding and Shutdown Still Ongoing (posted 3/11/11)

Federal Government Shutdown Could Hit Maryland Economy Hard (posted 3/1/11)

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